April 2024
Applying Ohio law would run “contrary to a fundamental foreclosure policy of Massachusetts [and]. . . that applying this standard to foreclosures is also consistent with the Restatement (Second) of Conflict of Laws, which provides that mortgages and the foreclosure of mortgages are governed by the local law of the situs.”
Enforcing Choice of Law Provision wouldContravene Massachusetts Foreclosure Policy
On March 6, 2024, the U.S. District Court for the District of Massachusetts issued its decision in Pale Horse Realty, LLC v. Bezio, --- F.Supp.3d ---, 2024 WL 967593 (D.Mass. Mar. 6, 2024), which involved a claim to foreclose a Mortgage that included a choice of law provision requiring that the contract be governed by Ohio law. The choice of law provision also indicated that Ohio law should apply to the Mortgage without regard to conflict of law principles. The Defendants argued that the Plaintiff’s foreclosure claim was time-barred as such claims are subject to a six-year statute of limitations under Ohio law.
The Court recognized that, although parties are typically free to choose which state’s laws will govern their contractual rights and obligations, there are two important exceptions to this general rule. See id. at *3. First, a choice of law provision should not be enforced “if the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice.” Id., citing Hodas v. Morin, 442 Mass. 544, 550, 814 N.E.2d 320 (2004). Courts should also decline to enforce a choice of law provision if “application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state.” Id., citing Hodas, 442 Mass. at 550, 814 N.E.2d 320. The Court determined that the Plaintiff’s claims fell within both of the exceptions to the general rule. Id.
Applying the first exception, the Court determined that, although National City Bank, the originating lender, is based in Ohio, the Mortgage had subsequently been assigned to Pale Horse Realty, LLC, which is a Delaware limited liability company with its headquarters located in New York. See id. Further, the Defendants are residents of Massachusetts, which is also where property secured by the Mortgage is located. See id. Thus, the Court determined that the State of Ohio has no substantial relationship to the parties or the mortgage loan transaction. See id.
The Court determined that the second exception to the general rule regarding choice of law provisions also applies because the Mortgage at issue allows for foreclosure by exercise of the statutory power of sale. See id. In contrast, Ohio law does not permit a mortgagee to foreclose a mortgage by exercise of the statutory power of sale without judicial oversight. See id. Thus, applying Ohio law would run “contrary to a fundamental foreclosure policy of Massachusetts.” Id. The Court further acknowledged that applying this standard to foreclosures is also consistent with the Restatement (Second) of Conflict of Laws, which provides that mortgages and the foreclosure of mortgages are governed by the local law of the situs. See id., citing Restatement (Second) of Conflict of Laws §§ 228, 229 (1971).
Because Massachusetts law applies, the Court determined that the statute of limitations did not expire with respect to the Plaintiff’s foreclosure claim until five years after the maturity date stated in the Mortgage. See id., at *4. The Mortgage at issue does not mature until July 9, 2037, and, as a result, the Court rejected the Defendants’ argument that the Plaintiff’s claim is time-barred. See id.
If you would like to learn more about this decision or our Default Services in Maine, Massachusetts and New Hampshire please reach out and contact our Business Development Lead, Beth Stillings, to set up time to discuss. bs@dgandl.com
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